it just shifts the creditors around.
The latest steps remind me of the desperate attempts by US banks
to lend more money on top of prior money
during the late 1980s to Latin America,
when Citibank chairman Walter Wriston’s “countries cannot default” thesis
was left in ruins.
For everyone that said last spring that “Greece 2009 is not Argentina 2001”,
they’re right; Greece’s budget/trade deficits and debt/GDP were much worse.
"...since its bankruptcy and currency devaluation,
Iceland's economy and stock market have surged,
unbound by the shackles of a zombie monetary system and exponentially growing debt.
Ireland, to the contrary,
can only hope for at best a gradual decline in its economic output
instead of an outright collapse
now that European Commission council is the country's new politburo."
2. GDP figures can be misleading indicators of risk. Greece, Ireland, Spain and Portugal (GISP)
are small in GDP terms relative to Germany and France.
But their banking systems grew to be very large
(e.g., a 20% haircut on French bank exposure to GISP countries
would wipe out French bank equity).
"It can also, at best, hope that its pension fund will have a few penny farthings left
for the aging population
once it is done rescuing Europe..."
Irish Finance Minister Lehinan
intimated that Ireland asked to be able to apply haircuts to senior bank debt,
and was told by the EU that it would make no money available if there were any haircuts,
due to fears of contagion.
What does that tell you about the risk of small countries,
or the European banking system?
3. This crisis is not just about sovereign debt/deficits.
...The problem: total sovereign, corporate, financial and household debt,
and each country’s ability to service it.
...we’re still very nervous about Spain.
Why? Its economy is still on the brink of recession.
...Risks in Spain are not just about the banks;
nonfinancial private sector debt is 220% of GDP, the highest in the world.
4. ...The EU imposed a deal on Ireland’s lame duck government
that consigns the country to a very painful future.
The continued gutting of the Irish national pension fund is, to put it mildly,
a controversial decision.
...The Irish “bailout” plan, with its EUR 54,800 cost per household,
is by all accounts a modern-era “Long Day’s Journey Into Night”.
"It is precisely this option that a formerly democratic country refused to offer its citizens,
and is the reason why its entire government should be tried for treason:
instead of using empirical evidence that default and devaluation is the best outcome,
Ireland crumbled to the interests of a few parasite plutocrats,
which have just their own interests in mind,
and never those of the host nation
which ends up being abused and discarded..."
Ireland’s future, by the way, looks a lot more bleak than Iceland’s.
Iceland took a different path (debt default and a devaluation of 60%).
Two years on, Iceland is rebounding:
exports and manufacturing are growing by 20%,
tourism is back near all-time highs,
real wages are rising, unemployment is declining sharply,
interest rates fell from 18% to 5.5% and the stock market rebounded 50% from its lows.
In Ireland, GDP is contracting at a 9.7% rate; real wages,
price levels, the money supply and exports are falling;
and unemployment is stuck at 14%."
Michael Cembalest
CIO, JPM Private Bank via Tyler
This is nothing less than yet another example
that in the great collapsing game of Keynesian fundamentalist's dilemma,
he who defects, defaults and devalues first is the winner.
Congratulations Iceland.
To everyone else: enjoy the eventual revolutions.
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